As a business owner, there are many benefits to separating personal and business finances that go beyond tax time.
“Separating your finances is the first step to putting your business on the map as a real business entity. It gives your business legitimacy,” says Kaylyn M. Houston, Business Banking Client Manager at U.S. Bank.
Here are some practical tips for making a plan to separate your personal and business finances and sticking to it.
1. Talk with a financial expert
The first step in separating your finances is identifying your business banking needs. Are you a sole proprietor of a small business? Will your employees need access to your business finances? Do you need access to a line of credit? In any case, talking one-on-one with a financial expert, like a U.S. Bank business banker, is a great first step. “We are here to make your life easier,” Houston says.
2. Open an account just for your business
Once you’ve identified what you need for your business finances, ask a banking banker about the products and services offered. After reviewing what your bank offers and how it can meet the needs of your business, you’ll be able to open a bank account that’s right for you.
But first, if you are a sole proprietor operating a business under a name other than your own (think Cakes by Mel), you will need to register your business before opening a bank account. Then the bank can use your Employer Identification Number (EIN) to open the account.
3. Get a business credit card to help build your credit
Once you have a business checking or savings account, it’s time to get a credit card. Houston recommends using your business credit card to establish and build business credit. This will allow you to later apply, and pending approval, access lines of credit as your business grows. Just as importantly, building business credit allows you to keep your personal credit history separate. Note: If your business is new, your personal credit info will likely be used to qualify for a business credit card.
4. Plan to pay yourself a set salary
Remember – you are an employee of your business, so pay yourself accordingly. “I always advise my clients to take a salary for themselves and make it official,” Houston says. This can be especially helpful when tracking expenses during tax time. Note: We understand that some business owners forgo a salary when starting out. The important thing is – when paying yourself, determine a set amount and schedule. Avoid withdrawing different amounts of money at random times.
5. Track expenses and keep receipts
This is where the benefits of separating your finances become clear. “If your personal and business finances aren’t separated, it can take hours to go through your checking account statements and see what was personal and what was business,” Houston says. “That can cause a lot of headaches.” Tip: By keeping separate accounts, you can lean on the different bank statements and online resources like your bank’s mobile app for easier tracking.
And remember, your relationship with your business banker goes beyond opening accounts – they can continue to provide guidance as your business grows. Learn more about how U.S. Bank can help your business succeed.